BALANCE SHEET OF THE COMPANY:

20X2 20X1

LIABILITIES

Line of credit 165,230 122,400

Long term debt 1,658,560 1,658,560

shareholder equity

COmmon shares 415000 415000

(400,000 shares outstanindg)

RE 972,920 816,409

toal sharehodler 1,387,920 1,231,409

1. Long-term debt First Royal Bank The long-term debt matures December 31, 20X9, when the full amount of the principal is due. The loan bears interest at 9%, which is payable annually. The loan is secured by the property, plant, and equipment. The long-term debt has a covenant that the long-term debt to total asset ratio cannot exceed 0.70.
2. Based on market data, you have determined that the current risk-free rate is 3% and the expected market price of risk is 5%. You have estimated that the industry beta is 1.9.

Question 1.

We would like an estimate of our current market price per share for our common shares. For this, use the following assumptions :

The current date is January 1, 20X3.

At the end of 20X3, Bio-Fuel Generation Inc. (BFG) will pay a dividend of $0.75, which increases by 8% in 20X4 and 6% in 20X5.

Thereafter, the constant growth rate will be 3%.

Question 2

What is the company's weighted average cost of capital using its current capital structure? The current yield on the long-term debt is 7.5%